Why Binance Faced SEC Scrutiny Over 2017 BNB Coin Offering

Why Binance Faced SEC Scrutiny Over 2017 BNB Coin Offering

Key Takeaways

  • SEC investigates Binance for pre-sale of BNB token.
  • The BNB token was traded in 2017 through an ICO.
  • The SEC fights Ripple in court on similar grounds.
  • The ISR and the CFTC are also investigating Binance in the US.

A report recently published by the Bloomberg news agency suggests that the US Securities and Exchange Commission (SEC) is conducting an ongoing investigation against Binance to determine if it violated securities laws after the sale of its Binance token. Coin (BNB) five years ago.

Since the news broke late last night, Binance's flagship coin has lost around 7.19% of market value and currently trades at about $282.98 on exchanges worldwide!

<span style="font-weight: 400; font-size: 12pt;">BNB/USD chart | Source: <a href="https://coinmarketcap.com/currencies/bnb/">CoinMarketCap</a> </span>
BNB/USD chart | Source: CoinMarketCap 

Binance has not confirmed or denied that they are under investigation from the SEC but says it would be inappropriate for them to comment on these ongoing conversations.

SEC Conducts Investigation Against Binance

According to Bloomberg, the information in question was provided by sources with knowledge of the case, which indicate that the SEC would be investigating the origins of Binance and the launch of the BNB token, for which they would be examining whether its pre-sale corresponded with the sale of a security that had to have been duly registered with the regulatory agency.

According to the report, this would be a new incursion by the SEC against companies within the crypto space that were financed through pre-sale campaigns for new cryptocurrencies. Let's keep in mind that the regulator is currently holding a dispute in court with the developer of Blockchain solutions, Ripple, which it sued for the alleged sale of securities in 2013 when they marketed the XRP token.

According to the founding document (White Paper) of Binance presented in 2017, the pre-sale of the BNB token contemplated the commercialization of at least 100 million units through an ICO campaign, which was carried out through multiple platforms. 

Those who acquired the digital currency at that stage could access it at a low cost compared to when it was officially launched. The company clarified that 85% of said funds raised would be used to support the operations and international deployment of the service. 

Apparently, in addition to the aforementioned, the SEC is concerned about the fact that US residents participated in these pre-sale campaigns, which would indicate that there was no type of restriction or control over who could acquire said tokens; this in attention to what meant by the securities laws in effect at that time. It also points out that Binance offered to pay its employees and service providers with the BNB token, which would have other implications for the said digital asset.

Case Similar to Ripple?

Although the sources clarify that an SEC compliance investigation does not necessarily lead to a lawsuit by the regulator, for many, the move somewhat resembles the actions and complaints filed by the regulator against Ripple.

Ripple CEO Brad Garlinghouse and other members of his team are currently appearing in court in a dispute against the SEC that still arises far from over. However, the trial has taken certain turns. Everything seems to tilt the balance in favor of the Blockchain solutions developer company, which maintains that the XRP token is not a security. By marketing it, they did not violate any law currently in force.

As detailed by the Bloomberg team, the investigation may be considering other essential aspects. It describes that it is also under consideration if Binance.US works as a separate entity from Binance and other possible allegations of using inside information to carry out investment activities that derived very lucrative results for certain people.

Let us bear in mind that Binance currently does not have a physical headquarters in any country. However, that has not been an impediment for it to opt for and access the respective licenses to offer its services in many legislations. It should also be considered that this has not been an inconvenience for the exchange to continue carrying out its expansion process, which has further consolidated its position at regional levels.

Investigation Is Ongoing

Faced with this report, the Binance team claimed that, at the moment, they cannot provide comments on the ongoing conversations with regulators but announced that it is in constant contact with the authorities and that it will comply with the rulings indicated by the regulatory authorities.

For its part, the SEC team refrained from commenting on the matter.

The Internal Revenue Service (IRS) and the Commodity Futures Trading Commission (CFTC ) are investigating Binance. This is under the premise that the exchange allowed US residents to launder money with cryptocurrencies through its platform.

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